 Microeconomic reforms
combined with macro stability had underpinned New Zealand's strong economic
performance of recent years and provided a basis for sustained higher economic growth in
the future.

TRADE
POLICY REVIEW BODY: REVIEW OF NEW ZEALAND
TPRB'S EVALUATION Back to top

The Trade Policy Review Body of the World Trade
Organization (WTO) conducted its second review of New Zealand's trade policies on 21 and
22 October 1996. The text of the Chairman's concluding remarks is attached as a summary of
the salient points which emerged during the two-day discussion.

The review enables the TPRB to conduct a collective
examination of the full range of trade policies and practices of each WTO member country
at regular periodic intervals to monitor significant trends and developments which may
have an impact on the global trading system.

The review is based on two reports which are
prepared respectively by the WTO Secretariat and the government under review and which
cover all aspects of the country's trade policies, including: its domestic laws and
regulations; the institutional framework; bilateral, regional and other preferential
agreements; the wider economic needs and the external environment.

A record of the discussions and the Chairperson's
summing-up, together with these two reports, will be published in due course as the
complete trade policy review of New Zealand and will be available from the WTO
Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

The Trade Policy Review Body has now
completed the second review of New Zealand's trade policies and practices. These
remarks, made on my own responsibility, summarize the main points of the discussion. They
are not intended to substitute for the collective evaluation and appreciation of
New Zealand's trade policies and practices. Details of the discussion will be
reflected in the minutes of the meeting.

The discussion developed under four main themes: (i)
the macroeconomic and structural environment; (ii) multilateral and regional issues; (iii)
specific trade-related issues; and (iv) sectoral questions.

(i)The macroeconomic and structural environment

Participants praised New Zealand for its bold
economic transformation, which had largely been undertaken unilaterally and had made the
economy among the most open in the world. Microeconomic reforms combined with macro
stability had underpinned New Zealand's strong economic performance of recent years
and provided a basis for sustained higher economic growth in the future. Trade policy
reforms were recognized as central to the overall liberalization effort, but privatization
and corporatization, along with financial policy, tax policy, foreign investment policy,
and other areas were also seen as important.

The role of labour market reform in raising
productivity was of interest to Members. Productivity growth was allowing New Zealand
exporters to maintain export volumes in the face of an appreciating currency. Investment,
including foreign direct investment, had risen rapidly and, despite substantial government
surpluses, was outstripping savings, with this imbalance reflected in a current account
deficit. Recognition of this relationship gave rise to questions regarding the timing of
tax cuts and efforts to promote savings. Participants, noting that the success of the
reforms had reinforced pressure for trade liberalization, asked in which sectors this
pressure was strongest. New Zealand was asked to comment on the expected evolution of
policy in the few areas where sectoral restrictions on foreign direct investment remained.

Members asked whether the benefits of reform had
been studied ex ante and whether such studies had a role in prompting the economic
reform, and asked for observations on the impact or expected impact of Uruguay Round
reforms on the prices paid to New Zealand's factors of production, such as
agricultural land. Finally, participants were interested in the expected future evolution
of New Zealand's economic policies.

In response, the representative of New Zealand noted
that the link between New Zealand's poor economic performance before 1984 and the closed
economy policies followed at the time had been clearly recognized ; many studies had also
shown the high costs of protection. The results of liberalization had been clearly seen in
the economy in the last few years. Total factor productivity had grown more rapidly than
before; following a period of cost-cutting, investments were now being made in increasing
labour productivity through greater training and multi-skilling. Productivity increases
could not be attributed solely to labour reforms, but these reforms had played a major
role and had increased the speed of economic adjustment. He noted that the current account
deficit was not now seen as a problem, given the context of high levels of private
investment, export growth and diversification, and a fiscal surplus. Moreover, the
simplification of New Zealand's fiscal structure, combined with price stability, was
encouraging higher domestic savings.

Decisions on privatization and corporatization were
made on a case by case basis. With respect to foreign direct investment, in determining
applicants' financial commitments the authorities sought to ascertain whether the
applicant was genuinely behind the proposed investment and whether the applicant committed
its own finances. Investment restrictions on fishing referred only to the ownership of
fishing quota, while those concerning optometry, which applied equally to domestic and
foreign owned businesses, restricted the ability of any company to own more than
45 per cent of any optometry business: the latter restrictions were currently under
review.

(ii)Multilateral and regional issues

It was noted that New Zealand's trade policy
operated under four tracks: multilateral, unilateral, bilateral and regional. Participants
were interested in the relationship among these and whether New Zealand gave priority
to the multilateral track. The New Zealand delegation was asked to comment on the
role of the multilateral system in sustaining its own trade and domestic reforms.

Members noted that
implementation of the WTO Agreements was expected to have a substantial, positive effect
on the New Zealand economy; it was expected to be among the greatest beneficiaries of
multilateral trade reform. The mechanism for implementing multilateral commitments, such
as the results of a WTO dispute settlement panel, in domestic law was queried.

New Zealand's Closer
Economic Relations (CER) Agreement with Australia was one of the world's most
comprehensive trading arrangements. Participants were interested in New Zealand's
experience with eliminating anti-dumping actions on trans-Tasman trade and the extension
of domestic competition law to cover this trade; New Zealand was asked to comment on
the implications of GATT Article XXIV for such an arrangement. The possibility of expanded
membership in the CER was queried. Unrelated to the CER, it was asked whether any measures
were envisaged with respect to an agreement between maritime labour unions of the two
countries, which appeared to effectively preclude third-country competition in
Trans-Tasman shipping.

A number of participants,
noting New Zealand's active membership of APEC and the growing share of its trade within
the region, asked about its plans in this connection.

The representative of New
Zealand replied that a study commissioned by the government had estimated that the Uruguay
Round would lead to gains for New Zealand equivalent to 2.3 per cent of its GDP by
the year 2005, and create some 20,000 to 30,000 new jobs. Increases in agricultural
product prices resulting from the Uruguay Round would tend to cause increases in rural
land prices. These had increased by one third over the two years 1994-95; however, he
emphasised that the Uruguay Round was only one of several factors in this respect.

While certain sectors were
initially expected to be sensitive to liberalization under the CER, it had already proven
possible in 1988 to move forward the date for the complete bilateral free trade in goods
from 1995 to 1990. The CER had recently been expanded to cover aviation services and New
Zealand hoped that remaining services sector exclusions could be eliminated in the next
few years; the two parties had recently agreed to begin examination of a CER protocol for
investment. The CER left open the possibility of expanded membership; all requests would
be given careful consideration and applications from WTO members were welcomed. The two
parties had agreed that it would be logical to align CER rules of origin to a change of
tariff heading criterion, and to study the impact of such a change, in particular with
regard to processed food, forest products, steel and footwear: any changes would, however,
be implemented only after the WCO/WTO process had been completed. The bilateral agreement
with Canada formalized tariff preferences originating from the Commonwealth preference
scheme. In 1995, Canada and New Zealand had agreed to maintain preference margins, so long
as these did not interfere with unilateral tariff liberalization. New Zealand continued to
view complete multilateral free trade as the first best outcome, and the outcome to which
all four tracks were targeted. New Zealand believed that the WTO should set an ambitious
agenda in this regard.

(iii) Specific
trade-related issues

Participants appreciated
that New Zealand's remaining trade protection was in the form of import tariffs,
virtually all non-tariff measures having been abolished. Tariffs had been greatly reduced
over the previous decade and further reductions were to be implemented during the period
1997-2000. Participants hoped that future reductions would substantially reduce the
protection that remained for certain sectors, such as textiles and clothing, and reduce
tariff escalation and regional preference margins. Reductions could also reduce the impact
of New Zealand's tariff concession scheme on the unevenness of tariffs. As a result
of the Uruguay Round, New Zealand had greatly increased the proportion of its tariff
lines bound in the WTO; however, some delegations noted that applied rates were generally
well below bound levels and that substantial scope existed for bound rates to be reduced.

The interface between trade
remedy and competition policies was of interest to participants. A specific question was
raised about the procedure followed in anti-dumping cases and it was asked whether
standards used in this field might be equated with those applied under New Zealand's
competition policy. New Zealand was asked for additional information on standards,
particularly with reference to access for telecommunications, SPS measures particularly in
regard to cheese imports, and on the status of mutual recognition agreements with certain
other Members.

Some participants viewed
certain requirements regarding local supply possibilities for government procurement as
providing an advantage to domestic producers and asked New Zealand to give further
consideration to joining the Plurilateral Agreement on Government Procurement.
Clarification was sought on the operation of certain intellectual property provisions,
including the duration of patents and the application of the Geographical Indications Act
to foreign suppliers.

New Zealand believed that
the level of bindings had to be seen in context. The weighted average tariff cut made in
the Uruguay Round was approximately 50 per cent, far above the one-third target
level; New Zealand's current bindings provided substantial security. Tariff concessions
ensured that tariffs did not impose costs on businesses using inputs not produced in New
Zealand. The concession scheme was transparent and well documented; concessions, once
granted, were rarely withdrawn. Substantial liberalization had been undertaken with
respect to textiles and clothing and New Zealand's imports had increased by nearly
30 per cent over the past five years.

The representative indicated
that competition law was not seen as a general substitute for anti-dumping investigations.
Specific circumstances had made it possible to eliminate anti-dumping actions in
trans-Tasman trade. The authorities were considering initiating public discussion of
giving greater weight to national interest in anti-dumping measures. New Zealand had made
itself available for informal consultations with the European Union concerning the recent
imposition of countervailing duties on canned spaghetti from Italy.

On Government Procurement,
the representative stated that New Zealand's procurement regime fully accorded with the
WTO principles of non discrimination, national treatment and transparency. It had moved
well beyond the disciplines set out in the WTO Government Procurement Agreement, an
agreement viewed as flawed because of its accommodation of bilateral and sectoral
exemptions. Membership in the agreement would provide few benefits for New Zealand
exporters and New Zealand would face increased regulatory costs for little or no benefit.

New Zealand viewed trade
policy as closely linked with general economic policies designed to promote efficiency,
including competition policy. The lowering of trade barriers complemented sector-specific
deregulation and encouraged competition throughout the economy. In turn, enhanced
competition in the domestic economy influenced trade policy by enabling New Zealand to
support further global and regional trade liberalization.

The elimination of New
Zealand's system of patent extensions from January 1995, was not seen as a step backwards.
The Geographical Indications Act safeguarded foreign geographical indications in relation
to any bilateral or multilateral agreement to which New Zealand may become a party. To
date, no such agreements had been reached. New Zealand's Commerce Act did not prohibit
particular conduct in relation to exclusive dealing, but allowed the competition authority
and courts to determine whether certain behaviour was harmful to competition.

(iv) Sectoral issues

New Zealand was praised
for having eliminated agricultural export subsidies. However, the continuing role of
marketing boards in controlling agricultural exports stood out in an otherwise open trade
environment and was of concern. Participants asked about the particular effects of the
Uruguay Round on New Zealand's access to agricultural markets.

Members noted that
competition policy had worked together successfully with liberal trade and economic policy
in many services industries and sought New Zealand's comments on this experience. New
Zealand was asked whether it could consolidate its liberal policies through further GATS
commitments. In addition, participants were interested in whether New Zealand would
consider allowing easier or greater entry of foreign service suppliers and making GATS
commitments regarding the movement of natural persons in the future.

Discussion of other sectors
included textiles and clothing, where New Zealand was praised for not using import
quotas and for foregoing the possible use of special safeguards; aluminium and steel; and
pharmaceuticals, where some participants felt that the scheme used for the reimbursement
of out-patient costs for medicines effectively restricted market access.

The representative of New
Zealand maintained that the activities of the export marketing boards were fully
consistent with WTO provisions, which essentially provided that they operate in accordance
with commercial criteria. New Zealand's dairy output represented less than 2 per cent
of international production; its share of dairy product consumption in major markets was
small, and reflected the substantial market access limitations persisting in many markets.
No marketing boards in New Zealand held import monopolies; the government provided no
support to the Boards, but there was green box support to the covered products. New
Zealand's current AMS under the Agriculture Agreement was zero.

New Zealand's provisions
regarding international telecommunications services were applied on an m.f.n. basis, but
recognized that New Zealand's competitive suppliers may be vulnerable to the actions of
overseas operators who, under some conditions, could play one supplier off against
another, to the detriment of New Zealand's telecommunications users. The competitive
environment in New Zealand allowed for the free negotiation of local interconnection
agreements, backed by competition law. New Zealand maintained five m.f.n. exemptions in
services ; it had recently considered the removal of one exemption in the maritime
transport negotiations and expected to again consider the issue of m.f.n. exemptions at
the scheduled review of m.f.n. exemptions to be held by 2000. New Zealand's Uruguay Round
service commitments were among the most comprehensive made in the Round and reflected New
Zealand's assessment of the balance of negotiated outcomes in both services and other
areas.

The representative outlined
the structure and pricing policies of Pharmac, emphasizing that it did not control what
prescription drugs might be sold nor, to any large extent, their price. The exemption from
competition law aimed to allow regional health authorities to continue national
negotiation of pharmaceutical subsidies. Further answers were given regarding steel and
aluminium.

Overall, Members commented
in very favourable terms on the extent of liberalisation and openness in the New Zealand
economy. The mix of multilateral, regional and unilateral approaches was particularly
noted. A few questions remained in specific areas: including, for example the continuing
rôle of Marketing Boards in the agricultural sector and New Zealand's position vis-à-vis
the Government Procurement Agreement. Overall, however, the depth and radicalism of the
reform process was positively assessed and was seen as offering useful lessons for the
economies of other WTO members.